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How the coming MGM resort casino could help energize Radio One

Cathy Hughes, the founder of Silver Spring-based Radio One, discusses the importance of ethnic media on Inside Media at the Newseum

Close watchers of Radio One, the national network of radio and television stations aimed at black and urban consumers, knows the company has had a rocky stretch in recent years.

With its radio stations struggling in some markets, the company lost nearly $32 million in six months ending in June. It lost $13 million alone in the second quarter. Radio One’s stock has been trading at a little over $2.50 per share this week, a far cry from its pre-recession value.

But help may be on the way, in the form of the $1.3 billion MGM casino resort under construction at National Harbor.

In order to win a license for the National Harbor casino, MGM Resorts International was required to bring on minority-owned businesses as ownership partners. James J. Murren, MGM chief executive, said he was introduced to Radio One founder Cathy Hughes by an MGM board member, former U.S. Labor secretary Alexis M. Herman.

The meeting led to Hughes and her son, Alfred C. Liggins III, who now runs the company, investing $40 million in the project in return for a potentially lucrative cut of revenues. The stake amounts to about 3.1 percent of the total project cost.

“Alfred and his mom own more than I do,” Murren said.

Murren has made a priority of connecting to minority communities. Last week he was in town to celebrate a $1 million donation MGM made to the National Museum of African American History and Culture. In an interview he said 65 percent of his company’s 62,000 employees are minorities and that diversity “has been the driving force behind the entire company.”

The early success of Radio One has been an inspiring story locally. Founder Hughes began broadcasting from the corner of H and Fourth streets NE in 1980, about 30 years before the H Street corridor became fashionable. The company now owns 54 radio stations in 16 markets. Its television shows reach nearly 60 million viewers.

So notable was her role that at the recent H Street festival, that first corner was renamed for her.

“Let me say to you quite appreciatedly and quite sincerely, we would not be the largest black-owned media company in the world today had it not been for the residents of the District of Columbia,” she told a cheering crowd.

A plaque on H Street might not bolster the finances of Radio One, now based in Silver Spring, but the deal Hughes cut with MGM might.

Estimates have varied widely about how well the new facility will do, but consultants contracted by the State of Maryland projected that the MGM would generate $713 million to $719 million in annual pretax gambling revenue by 2019. (About 70 percent of the company’s revenue typically comes from non-gambling sources.)

Radio One’s deal means it will get 1 percent of MGM’s gaming revenue, which could mean $7 million annually — not bad for a $40 million investment. Liggins explained last month in the company’s earnings call, according to a transcript prepared by Seeking Alpha, that the company should see proceeds before the end of 2016.

[MGM is] investing real dollars into it, it’s going to be a first class resort in a great location and we should actually be able to recognize revenue from that investment the first month after they file with the Maryland Gaming Authorities on how much gaming revenue they did. So provided it opens in the second half of next year we actually should be able to book some revenue associated with that investment in the second half of next year.

Over time, the MGM money could improve Radio One’s financial position. Liggins told a Wall Street analyst on the call that Radio One planned to use the money to pay down debt and bolster its ability to acquire competitors in radio, television or digital, which could advance its efforts in expanding its television audience and turning around the performance of its radio stations.

(Peter D. Thompson, Radio One executive vice president and CFO, did not return a call seeking comment.)

The gambling business may be new for Radio One but Murren says there are further opportunities for collaboration with its existing radio and television programs. For instance, the new MGM will have a 3,000-seat entertainment venue that will host concerts, boxing matches, MMA fights and other events.

Those events could be broadcast or cross-promoted for listners on Radio One stations like WMMJ-FM (Majic 102.3).

“We at MGM could sponsor a station or a show or a series of shows,” Murren said. 

Follow Jonathan O’Connell on Twitter: @oconnellpostbiz